Hospital deals drive up prices

(Bloomberg) — Hospitals are busily merging with other hospitals and buying up groups of doctors. They claim that size brings efficiency and the opportunity to deliver more “value-based” care — and fewer unnecessary services. They argue that they have to get bigger to cut waste. What’s the evidence that bigger hospitals offer better value? Not a lot.

If you think of value as some combination of needed services delivered for the right price, large hospitals are no better than small hospitals on both counts. The Dartmouth Atlas of Health Care and other sources have shown time and again that some of the biggest and best-known U.S. hospitals are no less guilty of subjecting patients to useless tests and marginal treatments.

Larger hospitals are also very good at raising prices. In 2010, an analysis for the Massachusetts attorney general found no correlation between price and quality of care. A study published recently in Health Affairs offered similar results for the rest of the country: On average, higher-priced hospitals are bigger, but offer no better quality of care.

The disconnect between price and value has many causes, but the flurry of mergers and acquisitions in the hospital industry is making it worse. Hospitals command higher prices when they corner market share. They gain even more leverage when they gobble up large physician practices.

Courts are beginning to wake up to these facts. Last year, St. Luke’s Health System Ltd., a multihospital chain based in Boise, Idaho, acquired the state’s largest independent multispecialty physician practice group, Saltzer Medical Group, giving the hospital 80 percent of adult primary care physicians in the relevant market. On Jan. 24, the U.S. District Court in Idaho ruled that the acquisition violated federal antitrust law, and reversed it.

But the courts aren’t moving fast enough. In many communities, deals between hospitals and physician practices, particularly procedure-oriented specialists, amount to a pact to fleece the system. Hospitals often command higher rates for procedures and tests than do specialists in their private practices. With specialists on a salary, a hospital can charge its higher rates, and the parties split the increased revenue. Everybody wins, except patients and payers.

The phenomenon of buying doctors’ practices is changing health care in ways that go deeper than raising prices. Power is shifting from physicians and other caregivers, whose duty (though they don’t always fulfill it) is to the needs of patients, toward administrators and corporations, whose loyalty lies with the institution or shareholders.

Physicians have long held the “power of the pen.” Their decisions about whether to admit patients, which diagnostic tests to perform and which treatments to pursue ultimately determine if a patient gets the right care, and how much that patient’s care costs. Few nonclinicians understand just how much medical decision-making is discretionary — from the interpretation of a borderline test to the decision to admit to the hospital.

As large hospitals gain financial control of physician practices, the medical profession becomes another cog in the corporate machine, and many physicians have told us they feel they must skew their medical judgment to keep their jobs. A recent case in point: At Health Management Associates Inc., a chain of hospitals based in Florida, administrators rewarded and punished emergency physicians based on whether they met targets for admitting — regardless of what the patient needed.